UK banks face full CMA competition probe

Free banking could be one reason why the market is not working properly

Markets watchdog the Competition and Markets Authority (CMA) has recommended a full competition inquiry into banks.

The provisional decision recommends a full-scale inquiry into the banking sector including the provision of current accounts and business lending.

The process will start with a consultation, and the CMA will take a final decision in the autumn.

The banking industry said it would co-operate with the review, but that changes were already underway.

Alex Chisholm, CMA chief executive, told BBC Radio 4's Today programme it was "vital" that the banking sector worked properly, which was why the full eighteen month investigation was being proposed.

Start Quote

There are a lot of under-satisfied customers out there, and small businesses are saying they are not happy”

End Quote Alex Chisholm CMA chief executive

"At the moment they don't seem to be doing a good job of satisfying their customers," he said.

"There are a lot of under-satisfied customers out there, and small businesses are saying they are not happy," he added.

The CMA said:

  • many customers saw little difference between the largest banks in terms of the services they offer.
  • the number of consumers shopping around and switching between banks remained low - just 3% a year for personal accounts.
  • current account overdraft charges were found to be very complex, making it harder for bank customers to choose the cheapest or most appropriate accounts.
  • free banking may be distorting competition.
  • it was still difficult for newer and smaller "challenger" banks to get into the industry, particularly in Scotland and Northern Ireland.


The banking industry said it would co-operate with the review, and any subsequent investigation.

The British Bankers' Association (BBA) said there were already "substantial" changes underway.

Start Quote

Kamal Ahmed

The UK current account market is based on a market anomaly - the main product is given away for free.”

End Quote Kamal Ahmed BBC Business Editor

"Banks are pro-competition - they compete for customers every day," said Anthony Browne, chief executive of the BBA.

"Last month we published a series of ideas to help new banks set up and smaller players to grow. We hope these suggestions will be taken up by regulators and politicians."

Amongst those ideas was a proposal by the big four banks that they introduce a price comparison website, to help consumers switch accounts more easily.

But the CMA said a full-scale inquiry was still preferable.

The BBC's Business Editor, Kamal Ahmed, said the key issue - and an anomaly of the market- is that banking is free.

"Free-in-credit banking means that customers lack incentives to move. It also makes it harder for new entrants," he said.

What could change?

Any inquiry could, in theory, order a break-up of Britain's biggest banks. The big four - Barclays, RBS, HSBC and Lloyds - have a 77% share of the current account market.

However such outcomes are rare.

Both RBS - which is divesting itself of Williams and Glyn- and Lloyds, which has already hived off its TSB arm, are already smaller than they were.

But Ed Miliband, the Labour Leader, has already called for a full-scale break-up.

The CMA could also order "behavioural" changes, forcing banks to be more transparent about overdraft charges.

This forthcoming probe from the CMA is the latest in a plethora of inquiries into the state of the industry going back nearly two decades:

  • In 2002 there was a Competition Commission inquiry into the supply of banking services to small businesses by clearing banks
  • In 2008 the Office of Fair Trading investigated the provision of personal current accounts
  • In 2011 the Independent Commission on Banking also made recommendations aimed at promoting financial stability and competition.

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